KDB Still Angling for a Piece of Lehman Brothers

By Jennifer Yousfi
Managing Editor

Lehman Brothers Holdings Inc. (LEH) is scrambling to find a much-needed capital injection prior to announcing fiscal third quarter results this month.

State-controlled Korea Development Bank, or KDB, confirmed it would take a 25% stake in the struggling Wall St. investment bank if it could find enough private sector partners to form a consortium in order to get government approval for the deal.

“In order to become competitive as a global investment bank, KDB has been looking into an M&A deal with overseas investment banks, including Lehman Brothers, as well as an asset management company, but nothing specific has been decided,” KDB said in a statement, Forbes reported.

KDB’s Chief Executive Officer Min Euoo Sung, a former Lehman employee, is eager to make the deal. But the Korean government believes plans for KDB’s privatization must take presidence over any potentially risky Lehman stake.

Earlier speculation of a buyout by KDB was quickly put to rest by Financial Services Commission (FSC) spokesman Yoo Jae Hoon, who said, “Deals deviating from government guidelines won't get a green light.”

Some question Min’s motives in aggressively pursuing the Lehman deal, when so much work still needs to be done in order to take the government-owned KDB private.

“The name of the game now is hoarding resources to prepare for the winter,” banking analyst Chang H. Lee at Daiwa Securities, told BusinessWeek. “It certainly is not a time to seek glory through expansion.”

Lehman Bros. is slated to announce third-quarter earnings on Sept. 15. A writedown of up to $4 billion is expected, making Chief Executive Richard Fuld eager to iron out the details for the potential $5.3 billion investment from the KDB-led consortium.

A report in the South Korean daily Chosun Ilbo, citing an anonymous source, yesterday (Wednesday) said HSBC Holdings PLC (ADR: HBC) and an unnamed China bank could also potentially be interested in making an investment in Lehman Brothers. However, HSBC refused to comment on the report.

Lehman Brothers stock rose over 5% with a gain of 81 cents to close at $16.94 yesterday on news of the potential foreign investors. 

News and Related Story Links:

• MarketWatch:
  HSBC, China bank said to be latest Lehman suitors

• BusinessWeek:
  Lehman: Skeptics Doubt a Korean Rescue

• Forbes:
  Crunch Time For Lehman

• Money Morning:
  Korea’s Government Nixes Possible Lehman Bros. Bid

• Money Morning:
  Korea’s KDB Could Prove to be Lehman Bros. Savior